State Settles Medi-Cal Dispute With Firm : Health: Company will return $6.3 million it allegedly overbilled for blood products. An executive denies wrongdoing, says a lawsuit would be too costly to pursue.

State Controller Kathleen Connell, vowing that her office “will demand fair pricing, quality products and good service,” announced Wednesday that Indiana-based Quantum Health Resources has agreed to repay $6.3 million it allegedly overbilled Medi-Cal.

Connell said that over the past four years, the Indianapolis company had overcharged the state 25% for blood-clotting products used by hemophiliacs, and that the settlement reached with Quantum is the largest in recent years.

“I’m not going to allow California taxpayers to be ripped off because businesses or individuals think they can manipulate the Medi-Cal system for their own gain,” Connell said at a Los Angeles press conference. “Today’s settlement sends a strong warning to those who would misuse the program.”

A Quantum spokesman, however, took strong issue with Connell’s characterization that his company had “ripped off” California taxpayers.

“For the four years in question, we lost money” on the sales to California, said Quantum Vice President John McIlwaith. The 25% that Connell said Quantum overcharged the state is the company’s gross margin before expenses are factored in, McIlwaith said.

“She’s not saying you’re not allowed to make a profit,” he said of Connell’s position. “She’s saying you can’t even break even. That’s crazy.”

The dispute settled Wednesday centered on what Quantum charged the state for the blood-clotting agent Monoclate P. The state allows companies to be reimbursed what they paid the manufacturer, plus 1% and a small fee for dispensing the drug.

During a routine audit, Connell said, her office discovered that Quantum and some other providers of the drug typically received discounts and free goods of up to 30% per order. She said those discounts should have been passed on to the state, but Quantum did not do so.

Connell demanded that Quantum repay the state and in April put a hold on all money the state owed the company. Quantum sued to collect the outstanding payments--many of which had nothing to do with the blood-clotting agent, McIlwaith said.

He said it is “absurd” to think his company could recoup its costs from the 1% markup allowed by the state, adding that Quantum “was making headway” on its lawsuit.

The company, however, realized that what it was “facing was not getting a resolution for years,” he said. “We asked, ‘How can we afford to fight this battle, pay the legal fees?’ We decided that it was much better to put it behind us.”

He said his company contends that the way the state reimburses for the blood-clotting agent is invalid, and that Quantum is happy the state has agreed to review its repayment method.

As part of the settlement, Quantum dropped its lawsuit against the state and $7.3 million due the company will be released. When the overpayment is deducted, the company will receive a net payment of about $1 million, the controller’s office said.

Connell said her office is also looking at two additional cases involving either product overcharges or rebates due the state and expects those settlements, along with the one with Quantum, to total more than $10 million.

That amount may seem small in the $18 billion-a-year Medi-Cal program, Connell said, but it is enough to pay for a year’s schooling for 2,600 kindergarten through 12th-grade students.